Maintaining a Reliable Cash Flow Top 5 Benefits of Invoice Factoring

With banks tightening the extension of credit for small businesses these days, several financing options seem to be unviable.

In such a situation, invoice factoring may be the right choice for your business. It is being regarded one of the most genuine alternatives to conventional bank funding option by several businesses.

Plus, it has a number of benefits.

Invoice factoring lets you stabilize your cash flow by converting outstanding invoices due in 30, 60 or even 90 days into immediate working capital.

Still not sure if invoice factoring is a trustworthy means of business financing?

In that case, here are five prominent benefits of invoice factoring that will help you understand why it may be right for you.

1. More Time to Focus on Business-Building Strategies

Are late payments from your clients causing you a lot of trouble?

Invoice factoring can be your savior.

The invoice financier will look after your sales ledger, freeing up your time to manage your business. This implies that you won’t have to wait for customers’ payments so that you can make yours. With invoice factoring, you can pay bills, meet payroll, and remit taxes on time without worrying about late fees or damaged credit. Moreover, the invoice financiers will also take care of the excessive paperwork.

This way you’ll get ample amount of time to focus on other business-building endeavors such as sales, marketing, and client development. Further, you can plan about taking calculated financial risks as you’ll be able to figure out the exact amount of money that will hit your account well in time.

2. Quick Access to Money and Living a Debt-Free Life

Invoice factoring makes for an appealing means of financing because it is one of the quickest and easiest processes for acquiring funds. The initial setup averages 5-10 days from receipt of the factoring application and supporting documentation. Funds on approved invoices are provided to businesses within 24-48 hours in most cases.

Comparatively, banks take a lot longer to approve loans.

Moreover, as invoice factoring is not a loan, it doesn’t add to the liabilities on your balance sheet. This implies no monthly loan payments, and a clear balance sheet.

3. Receiving Payments on Time

The invoice financier will credit check potential customers, and this will enable your business to trade with better quality clients, eventually resulting in receiving payments on time. Moreover, the financier can help you negotiate better terms with your suppliers.

4. Choose Invoices as per Your Convenience

Long term contracts, minimums, or maximums – forget these concerns with invoice factoring. You can pick and choose invoices that you want to factor without having to worry about bizarre terms and conditions.

Also, the factoring fee is quite reasonable. The cost of factoring invoices has declined drastically over the years with advances of up to 95% of the invoice value available, and fees as low as 1.5% over base rate. The fees vary by industry, volume and number of invoices, advance rates, customer creditworthiness, and the time the customers take to pay.

Additionally, factoring companies don’t demand you to spend your funds in a specific manner, which is why you can buy equipment or assets the way you intend to.

5. Strong Financials Not a Requisite

If your business has hit a few bumps in the road and you’re worried that you won’t qualify for factoring services, keep your qualms aside.

You don’t need great credit, years of experience in business, or a long strong financial history to qualify for factoring services. The factoring company looks at the strength of your customers paying on the invoices, instead of focusing only on your credit score.

Moreover, unlike traditional bank loans, factoring doesn’t require you to risk your home or other property as collateral. Factoring companies mainly focus on the credit strength of your customers.

Owing to the many benefits of invoice factoring, several companies are using this means to fund their businesses and increase profits. If structured thoughtfully, you can use factoring to boost your bottom line. There’s so much to it, from taking advantage of early payment discounts, and negotiating bulk discounts from suppliers, to increasing inventory for large orders. Moreover, applying for bank loans can be a real hassle. The aforementioned benefits make it clear that invoice factoring options are more flexible and less expensive than ever before and procuring cash is quicker through it. Not to forget, choosing this funding method will also go a long way in building a healthy relationship with your client.

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